When "Lindy" was trying to figure out the implications of the latest divorce settlement offer that she received from her soon-to-be ex-husband "Ted," she panicked. She would have asked her lawyer for guidance, as 79% of divorcing individuals end up doing, but she was not sure that her lawyer could give her the guidance she needed.
The previous offer had come two days before their last court appearance. There was just not enough time to understand the implications of the various components of the offer and assess whether it was an equitable division of marital assets. Lindy was just too nervous to make the decision "on the steps of the courthouse," so she said no.
Clearly, there is something wrong with a process in which the financial outcome is so critical to both parties but people like Lindy and Ted get no professional financial support despite spending substantial sums of money litigating a divorce. Yet it is not surprising. The financial issues of divorce, including shorter-term tax issues and longer-term financial planning issues, have become terribly complex. Divorce lawyers have enough on their hands with the legal issues of divorce. Increasingly, they are unable to counsel their clients in depth on the financial implications of divorce, which inevitably have a lasting impact on their quality of life and stability long after the divorce itself is finalized.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
According to a recent survey conducted by the Institute of Divorce Financial Analysts, 75% of respondents believe that a divorce financial specialist would have been helpful in the preparation, negotiation or recovery phases of their divorces. According to this same survey, 45% of people litigating their divorces felt unprepared to enter financial negotiations, and 40% of those mediating their divorces feel the same way.
No wonder divorce financial planning has risen as a specialty. Professionals dedicated to meeting the needs of divorcing individuals can help people such as Lindy and Ted understand the financial issues of divorce, negotiate settlements and recover into a financially stable post-divorce life.
In Lindy's case, she was fortunate to be referred to a divorce financial planner by a divorce coach. Divorce financial planners build on financial expertise often acquired by certified financial planners (CFP) or certified public accountants (CPAs). They also often hold the certified divorce financial analyst (CDFA) designation. They excel in their ability to simplify the complex financial issues of divorce so that people like Lindy and Ted can understand the consequences of their decisions and plan accordingly for their separate futures. In addition, divorce financial planners bring to the table an understanding of tax issues in divorce, employee stock options, retirement plans, pension plans, Social Security, real estate and long-term financial planning. They help assess potential outcomes of strategies such as trading home equity for ownership of retirement accounts—is that a good idea for you for the long term?
As with other financial specialists, divorcing couples and individuals are usually better off picking a fee-only divorce financial planner who will have his or her clients' best interests at heart. A great resource to find one is Association of Divorce Financial Planners (ADFP).
In Lindy's case, the new offer seemed to address her needs better. Ted offered to give Lindy more of the 401(k) in exchange for keeping his pension. In addition, Ted offered more alimony. However, Ted's offer was still not clear about his employee stock options, as he did not know how to value them. Plus, the offer did not address the issue of college funding for their 13-year-old daughter.
Lindy's divorce financial planner carefully reviewed the settlement offer in light of her individual circumstances, explained the various issues and made recommendations for her lawyer.
After some more negotiations, Lindy and Ted were able to come to an agreement and avoid a costly trial. Even Lindy's lawyer was happy with the process, as it helped him to focus on his area of expertise: writing the agreement and managing the legal process.
Chris Chen, CFP®, CDFA, is the founder of Insight Financial Strategists, LLC, a fee only investment advisory firm in Waltham, Mass. He specializes in retirement planning and divorce financial planning for professionals and business owners. Chris is a member of the Financial Planning Association and the Massachusetts Council on Family Mediation. He is on the Board of Directors of the Association of Divorce Financial Planners.
-
Stock Market Today: Dow Nears Record High After Verizon EarningsThe Nasdaq also notched a new high on Monday, while the Dow finished with a marginal loss.
-
I Live Next to a Costco Business Center. Here Are 5 Things You Won't Find at a Costco WholesaleYou don't need to own a business to shop at a Costco Business Center. Here are five reasons to visit the one near you.
-
What Would You Like to Leave Behind? A Financial Planner's Guide to Family Wealth DiscussionsCommunicating about your assets and plans for passing them on increases clarity while preventing surprises and family disputes.
-
Seven Financial Considerations When Downsizing for RetirementWith prices going up on everything, you may be looking for a cheaper place to live. To truly evaluate costs, take a hard look at taxes and intangibles.
-
I Have Plenty of Money: Why Do I Need a Long-Term Care Plan?Long-term care planning, whether through insurance or self-funding, is crucial not only for financial protection but also to preserve family relationships and reduce the emotional and logistical burdens on loved ones.
-
Three Steps for Evaluating a Downsize in Retirement: A Financial Planner's GuideUnless you think things through, you could end up with major (and costly) regrets. To make the right choice, base it on the three keys to retirement happiness.
-
Worried About Your Retirement Income? Four Questions to Ask Yourself, From a Financial PlannerIf you're nearing or in retirement and stressing about your retirement income (so many of us are), consider taking some time to think about these four issues.
-
Do You Need Flood Insurance? I'm an Insurance Expert, and Here's Where You Can Get ItStandard homeowners insurance does not cover flood damage, so you might need separate flood insurance, which you can get either through FEMA or private companies. Here are the details.
-
I'm an Investment Professional: These Are the Three Money Tips I'm Giving My College GradCollege grads can help set themselves up for financial independence by focusing on emergency savings, opting into a 401(k) at work (if it's offered) and disciplined, long-term investing.
-
New SALT Cap Deduction: Unlock Massive Tax Savings With Non-Grantor TrustsThe One Big Beautiful Bill Act's increase of the state and local tax (SALT) deduction cap creates an opportunity to use multiple non-grantor trusts to maximize deductions and enhance estate planning.
